TL;DR
- The new program builds upon the existing policies of the Federal Reserve on crypto activities for banks.
- The announcement comes immediately after PayPal kicked off its PYUSD stablecoin.
Additional Regulations for Fintech and Crypto
The Federal Reserve has announced new guidelines regarding the bleeding edge fintech sector.
The new update requires banks and other financial institutions to comply with the rules it sets out to engage in supporting crypto activities.
While there are previous instructions for such activities, the new guidelines clarify how the central bank engages and handles the oversight. This intention is a major step forward, giving digital financial advancements a regulatory environment.
The fintech industry increasingly using blockchain and crypto has brought the U.S. banking system to a crossroads.
The institutions can enter the largely unregulated crypto arena to expose their customers to the assets. However, this is done at the cost of little to no consumer rights protection.
On the other hand, if they intend to remain fully compliant, there are gaps in the regulations, such as safety and taxation on the gains.
The Novel Activities Supervision Program
The Novel Activities Supervision Program changes how financial institutions will provide crypto and other digital assets to their customers.
The program focuses on how financial institutions, banks, and other crypto service providers interact and operate to foster a regulatory-friendly environment.
Specifically, this entails obtaining approval for custody, issuance, trading, or crypto lending.
The goal of the novel activities supervision program is to foster the benefits of financial innovation while recognizing and appropriately addressing risks to ensure the safety and soundness of the banking system. The program will be integrated into the Federal Reserve’s existing supervisory processes, with program experts working alongside current supervisory teams to oversee banks engaged in novel activities.
Federal Reserve Press Release
The new guideline supports the original January policy of crypto guidance. It says all banks, insured or uninsured, will be subject to the same limitations of activities for novel activities, including crypto.
Stablecoins and New Guidelines
Any institution intending to offer crypto services must demonstrate its capabilities to identify, monitor and control its risks. This includes scrutiny of AML, hacks, and other vulnerabilities from the Feds before approval.
Among the regulated oversight planned by the Feds, the announcement specifically talks of stablecoins. Institutions looking to issue their own stablecoins must show that sufficient steps have been taken for a safe activity, such as liquidity and de-pegging countermeasures.
The announcement follows closely on the heels of a day after PayPal launched its PYUSD stablecoin.
Interestingly, PayPal has stated that it adheres to all existing guidelines. It also aligns with the New York Department of Financial Services.
Consequently, it’s still uncertain how the new guidelines will influence its Dollar-pegged coin, PYUSD.
Michael Healy
Michael, an entrepreneur, and co-founder of Unit, is a full-stack, mobile, and blockchain developer with extensive experience in the crypto and blockchain industry since 2010. A leading token builder, Unit powers the token economy using the Polkadot-powered Unit Network blockchain. Michael has built a diverse portfolio with multiple successful exits, including encrypted P2P video conferencing, a large UK student social network, and the Wikileaks Android app. He has experience working with top organizations like Wellington Partners, Founders Forum, Google, KPMG,...
